Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1.If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of good 1 stays at $1, then the income effect of the price change
A)is 4 times as strong as the substitution effect.
B)does not change demand for good 1.
C)is exactly twice as strong as the substitution effect.
D)accounts for the entire change in demand.
E)is 3 times as strong as the substitution effect.

Question

Quizplus · Accepted Answer

Since goods 1 and 2 are perfect complements, the consumer will always consume them in a fixed ratio. Therefore, any change in price will not lead to a substitution effect, and the entire change in demand will be due to the income effect.

Goods 1 and 2 Are Perfect Complements, and a Consumer